China’s ‘One Belt, One Road’ initiative

Geoff Wade, Foreign
Affairs, Defence and Security

Key Issue
The ‘One Belt, One Road’ (OBOR) initiative is a Chinese economic and strategic agenda by which the two ends of Eurasia, as well as Africa and Oceania, are being more closely tied along two routes–one overland and one maritime. Supporters suggest that the initiative permits new infrastructure and economic aid to be provided to needy economies. Critics claim that it facilitates Chinese economic and strategic domination of the countries along these routes. OBOR provides a global context for China’s growing economic links with Australia.

The ‘One Belt, One Road’ (OBOR) initiative is a
foreign policy and economic strategy of the People’s Republic of China. The term
derives from the overland ‘Silk Road Economic Belt’ and the ‘21st-Century
Maritime Silk Road’, concepts introduced by PRC President Xi Jinping in 2013.
These are the two major axes along which China proposes to economically link
Europe to China through countries across Eurasia and the Indian Ocean. The OBOR
initiative also links to Africa and Oceania. In March 2015, the PRC issued an action plan
for realising this initiative. While the OBOR initiative is being coordinated
by China’s National Development and Reform Commission,
it also heavily involves the ministries of Foreign Affairs and Commerce.

The initiative envisages
the building of six major economic cooperation corridors and several key
maritime pivot points across Eurasia:

On land, the plan is to build a new Eurasian
land bridge and develop the economic corridors of: China-Mongolia-Russia;
China-Central Asia-West Asia; the China-Indochina peninsula; China-Pakistan;
and Bangladesh-China-India-Myanmar ... On the seas, the initiative will focus on
jointly building smooth, secure and efficient transport routes connecting major
sea ports along the belt and road.

Formally, OBOR emphasises five key areas of
cooperation:

coordinating development policies

forging infrastructure and facilities networks

strengthening investment and trade relations

enhancing financial cooperation and

deepening social and cultural exchanges.

But it is infrastructure such as railways, roads,
ports, energy systems and telecommunications networks which is receiving most
attention.

The overland ‘Belt’ involves the creation of an
economic and trade corridor extending from China’s west through Central Asia, and
finally to Europe. The first step is to further link Central Asian
states to the Chinese economy, while the longer-distance initiatives
include railway
connections between China and Europe. The ‘Belt’ initiative calls for the
integration of the Eurasian land mass into a cohesive economic area.

Foremost among the key projects which have been
promoted as focal parts of the OBOR initiative are the China-Pakistan
Economic Corridor which provides China’s western provinces with access to
the Indian Ocean through the Pakistani port of Gwadar, and the Bangladesh
China India Myanmar Corridor, which will give Yunnan Province access to the
Bay of Bengal.

Funding for the initiative is a key issue. China’s
policy banks are providing massive
funds for Chinese enterprises to operate along these axes, while further
funding will be provided through the Asian Infrastructure Investment Bank (AIIB),
funded by countries globally. The AIIB was created precisely to service
projects under OBOR. The projects funded by the first
loans issued by AIIB were in Indonesia, Bangladesh, Pakistan and
Tajikistan, all countries which China is trying to include within its OBOR
initiative.

Hong Kong is also being tapped. In his policy
address in January 2016, the Chief Executive of the Hong Kong Special
Administrative Region, CY Leung, underlined that Hong Kong would play an active
financial role in OBOR and would facilitate educational exchanges between Hong
Kong and ‘OBOR countries’. A ‘Hong
Kong Belt and Road Summit’ was also convened in May 2016 to allow Zhang
Dejiang, Chairman of the Standing Committee of the National People’s Congress,
to outline ‘Hong Kong's Four Unique Advantages’ as a hub for OBOR projects. Then
in July 2016, the Hong Kong Monetary Authority launched the Infrastructure
Financing Facilitation Office, a new entity to facilitate fundraising for
projects related to the OBOR initiative. The Hong Kong Trade Development Council
has also arranged visits
to Thailand for Chinese investors to promote OBOR investment.

Singapore is also essential to promoting offshore
economic activities by Chinese entities. The China Construction Bank signed an
MOU with International Enterprise Singapore in April 2016, providing S$30 billion
in financial support to Singaporean and Chinese companies jointly investing in OBOR
projects. A new centre in Singapore to provide project financing and related
services to projects is also being planned.

While China claims that OBOR will ‘include 65
countries, 4.4 billion people and about 40 percent of global GDP’, the current
realities are much more pedestrian. China has reportedly established 75
overseas economic and trade cooperation zones in 35 countries as part of
the OBOR initiative. OBOR, however, remains inchoate and still strives for
external endorsement and support.

China’s other OBOR interests

It is clear that China has broader uses for the
increased influence it hopes to enjoy through the OBOR initiative.

The Bank of China has clearly
noted that OBOR is intended to make the Renminbi the main trading and
investment currency in the countries involved. The expansion
of Chinese banks into new OBOR
markets to serve the globalisation of the Chinese economy is also being
promoted. OBOR is further intended to facilitate online retailing and the
collection and use of big
data across OBOR countries. China has also been stressing the role of Overseas
Chinese in promoting OBOR projects.

The expansion of China-controlled
telecommunications networks is an important aspect of OBOR. CITIC Telecom CPC recently
acquired Linx Telecommunications, which services Russia,
Kazakhstan and the ‘Stan’ region, the Baltic Sea and Eastern Europe. This will
provide China with telecommunications services across much of its targeted
‘Belt’ region. Visits by journalists from OBOR countries to China,
and publishing arrangements with newspapers abroad are
intended to promote China’s views over a broader sphere.

Mining and energy projects are also central to this
endeavour, with China widely purchasing mines as well as generation and
transmission projects across OBOR states. Chinese companies now own almost a
quarter of Kazakhstan’s
oil production, while over $15 billion of oil,
gas and uranium deals have recently been signed with Uzbekistan.

And in this year’s white
paper on its satellite navigation and location service, China says that it
plans to launch another 30 Beidou
satellite navigation system satellites over the next five years, with the
first 18 satellites being launched before 2018 to cover OBOR countries.

Reactions

Reactions to the OBOR proposal have varied
globally. Ethnic Chinese business figures in Southeast Asia and their political
representatives have generally been enthusiastic about the business possibilities.
Malaysia has been active in accepting and promoting the idea, with a 162-member Malaysian delegation
heading to Beijing in July 2015 to participate in an OBOR dialogue.

Western reactions have been mixed. Business people
are generally
positive, while strategists have been less sanguine. In Europe, China has talked
up OBOR’s possible integration with the EU’s €315 billion
investment plan (the Juncker plan). China is simultaneously pushing for an EU-China
FTA that would make it easier for PRC companies to invest in European
markets. Central and Eastern Europe are a major focus for OBOR programs, with
the Czech
Republic, Serbia and Poland receiving major financial inputs.

Australia and OBOR

Within Australia, enterprises,
banks
and law
firms are promoting the OBOR initiative as an economic opportunity for the
country and, with Chinese endorsement, an Australia-China OBOR Initiative has
been established to promote Chinese engagement in the Australian economy. China
is also utilising the concept to promote its growing economic engagement with northern
Australia. Another avenue for encouraging Australia’s further engagement
with OBOR is China’s funding and support of various related local academic conferences
and seminars.

Criticisms

Not all reactions to OBOR have been enthusiastic. Former
World Trade Organization chief, Supachai Panitchpakdi, has
stated that the OBOR initiative and, specifically, its projects along the
Mekong River, all serve China’s own interests.

On the economic front, China has been criticised
for using its massive financial assets to dominate smaller economies through
long-term control of infrastructure,
natural
resources and associated land assets, and through offering less than
desirable credit
terms for infrastructure loans. Further, the ‘production
capacity cooperation’ which China lauds as an integral aspect of OBOR, often
involves the simple transfer
of Chinese-owned production capacity to countries where production is cheaper
and markets are closer. Such processes can also result in China exerting some control
over local markets, labour and export policies.

Despite the claimed economic nature of the OBOR
agenda, critics see the initiative as being simultaneously a strategic program.
China clearly portrays OBOR as both being premised on and further validating China’s
claims to the islands of the South China Sea, while on the other side of
the Indian Ocean, Djibouti is providing China with both a trade port as well as
its first
overseas military base. It has been repeatedly noted in China that OBOR is
also intended as a regional
security mechanism, and the future role of the People’s Liberation Army in protecting
China’s OBOR facilities abroad has been widely discussed. The two ‘economic
corridors’ now being developed provide China with direct access to the
Indian Ocean.

Conclusion

China’s wielding of this economic statecraft
strategy derives from several collocations. On the political front, since late
2012, President Xi has been promoting the ‘Chinese
dream’ (中国梦), involving the ‘great revival of the Chinese nation’. Such revival
requires a restored global position and identity for China. Earlier iterations
of OBOR involved the catch-phrases ‘common development’ and ‘win-win
cooperation’ to characterise the relations between China’s development and that
of its neighbours. China also promoted a ‘China-ASEAN
community of shared destiny’ (中国-东盟命运共同体). But these smaller initiatives have burgeoned into the
Eurasia-wide OBOR, bringing into play the PRC’s massive capital reserves—both
state and private—achieved through 40 years of rapid economic growth, and
offering an outlet for the vast excess
production capacities which exist today in China.

Regardless of the credence which one assigns to the
various interpretations of the OBOR initiative, progress thus far makes it
clear that as Australia becomes increasingly tied economically with China,
there is a need to maintain a close watch on the progress of the OBOR
initiative globally. It also suggests that Australia needs to adopt a more
economically and strategically prudent attitude in determining how the
Australia-China economic relationship is to further develop.